Areas of Tax Planning
In our tax planning practice, the taxpayer’s economic and tax situation is too complex and fact intensive for a “one size fits all” approach. We weigh the economic benefit and legal practicalities while bringing to the table a nuanced understanding of the tax law and the “common law” of taxation as it has developed over the past 100 years. We typically work as part of the taxpayer’s team of lawyers and accountants. Typical areas of tax planning include:
- Characterizing Distributions from C Corporations to their Owners
- Section 1031 Exchanges of Real Estate
- Planning for the Foreign Earned Income Exclusion
- Planning to Maximize Use of Foreign Tax Credits
- Planning to Utilize Passive Rental Losses
- Planning to Avoid Income from the Discharge of Indebtedness
Recent Examples of Successful Tax Planning
Tax planning is typically fact intensive. The details count. Here are three recent successful examples of our tax planning that were approved by the Internal Revenue Service.
(1) Sale of Real Estate. Several parcels of depreciable real estate are sold: some at a gain, and some at a loss. The taxpayer reports the gain using the installment method of tax accounting. The transaction is reported as a Section 1231 transaction whereby the losses are treated as ordinary losses that can be carried back; while the gains are treated as capital gains that are recognized ratably as the income is received. Thus, losses result in immediate refunds; while the tax on gains is deferred.
(2) Sale of Functional Currency. The proceeds of sale of foreign assets is used to purchase United States dollars. The gain is deferred as the sale of an asset held for the production of income for another asset held for the production of income and the income tax on the transaction is deferred.
(3) Foreign Tax Credits In Respect of a Decedent. Prior to his death, a decedent sold foreign real estate where the proceeds of sale were to be received in installments. Under the laws of the foreign jurisdiction, the decedent’s estate was required to pay foreign country and provincial income taxes on the entire transaction. Under United States tax law, the decedent was entitled to report gains under the installment method of accounting. The IRS allowed those who reported income in respect of a decent to report the related foreign tax credits in respect of a decedent.
Services We Do NOT Provide: Negotiating and Drafting
Our tax planning services are focused on reducing the amount of tax you owe. Thus, we do not render many of the typical drafting and negotiation services rendered by other tax attorneys. For example:
(1) Estate Planning. We will help plan an estate from a tax perspective. We do not, however, draft the wills, trusts and other estate planning documents. We will, however, review the completed estate planning documents for conformity with our tax advice.
(2) Business Transactions. We will assist attorneys and their clients understand the United States and state tax ramifications of business transactions. We do not typically negotiate business deals or draft the documents needed “paper” the deal. We will, however, review the completed documents for conformity with our tax advice.
(3) Business Organization. We will assist attorneys and their clients to understand the United States and state tax ramifications of owning a business, including S corporation and partnership tax issues. We do not, however, negotiate the deal with the shareholders or partners and we do not draft the incorporation documents or partnership operating agreement. We will, however, review the completed documents for conformity with our tax advice.